The Dollars Don't Make Sense in Santana Deal

Vince Gennaro is a consultant to several major league teams and the he also wrote a book called "Diamond Dollars: The Economics of Winning in Baseball". Mr. Gennaro wrote an article for Yahoo Sports detailing the economic pitfalls of a potential Santana trade. Here's some of what he had to say:

On the cost side, we can expect the tab for Santana to be in the neighborhood of $25 million a year for six years. Since the Yankees are over the luxury tax threshold and A-Rod's contract virtually eliminates any chance that they will go below it in the near future, the Yankees will be on the hook for another $10 million per year in luxury taxes, raising Santana's cost to about $35 million per year. The net result is that Santana would be a value-added signing for the Yankees, even at his steep price – generating about $225 million in revenues and asset appreciation and costing about $200 million, yielding a rate of return of 24 percent on their investment, probably enough to compensate the Yankees for the injury risk associated with any free agent pitcher.

The net impact for the Yankees is a contract extension for Santana that gets the Yankees about $25 million in value, but is more than offset by trading Hughes, Cabrera and one or two other minor league prospects, giving up about $60 to $70 million in value. What would need to happen to make this a good trade for the Yankees? If Santana signs with the Yankees at $5 million to $7 million per year below the price he would have gotten in an open bidding war as a free agent next winter, or if Hughes becomes only a fifth starter or bullpen reliever, the deal could make sense for the Yankees.

Any team who makes this trade will likely set its farm system back while placing a tremendous investment – and therefore risk – in one player. But if Santana ends up taking the hill in Game 1 of the World Series, the deal will considered a good one.

This, and to a lesser degree trading Phil Hughes, seem to be the main reason's why Hank and co. have backed away from the idea of trade for Johan.

Maybe now those fans who believe the Yankees should make this trade regardless of the costs will start to fully understand what those costs truly are.